3- suppose atlantic has a second bond with 25 years left to maturity in addition
ID: 2660407 • Letter: 3
Question
3- suppose atlantic has a second bond with 25 years left to maturity in addition to the one listed in exhibit 14.1 that has a copon rate of 73/8 percent and a january 1,2010 market price of 747.48.
suppose atlantic has a second bond with 25 years left to maturity in addition to the one listed in exhibit 14.1 that has a copon rate of 73/8 percent and a january 1,2010 market price of 747.48.
a-what are the stated and the effective annual YTMs on this bond?
b- what is the current yield on each of the 25 year bonds?
c-what is each of the 25year bonds expected price on janury 1, 2011, and its capital gains yield for 2010 , assuming no change in interest rates?(Hint remember that the normal YTM on each 25 year bond which is assumed to be its required rate of return is 10,18 percent.
d- what will happen to the value and price in an efficient market of each 25 year bond over time?
again assume constant future intrest rates.
e- what s the expected total percentage return on each 25 year bond during 2010?
f- if you were a tax paying investor, which of the two 25 year bonds would you perfer?Why What impact will this preference have on the price , and hence YTMs of the two bonds?
exhibit 14.1
Face amount Coupon Rate Maturity Date Years to Maturity S&P Bond Rating
$48,000,000 4 1/2 12/31/14 5 A+
$32,000,000 8 1/4 12/31/24 15 A+
$100,000,000 12 5/8 12/31/34 25 A+
Explanation / Answer
http://www.search-document.com/pdf/1/1/healthcare-finance-fourth-edition-solutions-manual-gapenski.html
^ go to the above link to understand this topic perfectly...A segment of above link I am posting below...
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